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2018 (5) TMI 624 - AT - Income TaxDisallowance on account of service tax payable u/s 43B - assessee has not debited the expenditure as service tax to the profit and loss account - recording of turnover of services without inclusion of service tax in violation of section 145A - Held that - Assessee has to pay service tax within due date as set out under the above provisions either by way of cash/cheque or by way of availing CENVAT credit as per Rules as stated above, but the assessee did not do so. The liability of service tax had also arisen as per the point of Taxation Rules. As per method of accounting, the assessee has also not included the service tax received by him in the turnover. In fact, the assessee was legally obliged to declare its turnover inclusive of service tax received. The assessee cannot be exonerated from its liability by saying that he accounted for the service tax received separately. The ld. CIT(A) has rightly disallowed the same u/s. 43B of the IT Act. - Decided against assessee.
Issues Involved:
1. Disallowance of ?85,26,467/- on account of service tax payable under Section 43B of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of ?85,26,467/- on account of service tax payable under Section 43B of the Income Tax Act: The assessee, engaged in the building and construction industry, filed a return declaring an income of ?3,69,73,797/- for the assessment year 2013-14. During scrutiny, the Assessing Officer (AO) observed that the assessee had received service tax amounting to ?1,16,09,924/-, out of which only ?30,83,457/- was deposited before filing the return. The balance of ?85,26,467/- was unpaid as per Annexure-VI of the audit report. The AO disallowed this unpaid service tax and added it back to the income of the assessee under Section 43B. The assessee appealed against this disallowance, arguing that Section 43B applies only if the expenditure has been debited to the profit and loss account and not paid within the due time. The assessee contended that the service tax received was credited separately and used for availing reverse charge mechanism and Cenvat Credit on capital goods, and thus, should not be disallowed under Section 43B. The Revenue argued that the assessee, being a limited company, did not apply the proper method of accounting as per Sections 145 and 145A of the Income Tax Act. The Revenue emphasized that under Section 43B, any unpaid tax, duty, cess, or fee should be taxed in the impugned year if not paid within the stipulated time. Upon review, the Tribunal noted that the assessee recorded turnover after deducting the service tax received and credited the service tax separately. It was emphasized that Section 145A mandates the inclusion of any tax, duties, cess, or fees in the valuation of purchase and sale of goods and inventory for determining income chargeable under the head profits and gains of business or profession. The Tribunal found that the assessee did not provide sufficient evidence regarding the invoices, payments received, or TDS remittance excluding service tax. The Tribunal further examined the relevant provisions of the Cenvat Credit Rules, 2004, and the Service Tax Rules, 1994, which require service tax to be paid within the due dates either by cash/cheque or by availing Cenvat credit. The Tribunal observed that the assessee failed to comply with these provisions. The Tribunal concluded that the assessee was legally obliged to declare its turnover inclusive of service tax received and could not be exonerated by accounting for service tax separately. Since the assessee did not pay the service tax within the stipulated time as per Section 43B(a) and the relevant provisions of the Service Tax Act, the disallowance by the CIT(A) was upheld. The Tribunal dismissed the appeal and the stay application filed by the assessee. Conclusion: The appeal of the assessee was dismissed, and the disallowance of ?85,26,467/- on account of service tax payable under Section 43B was upheld by the Tribunal. The assessee's failure to comply with the provisions of Section 43B and the Service Tax Act led to the confirmation of the addition to the income.
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